Eskom heading for another massive loss

 ·8 Jul 2024

South Africa’s state-owned electricity firm Eskom SOC Ltd. may post an annual loss as high as R15 billion rand ($825 million) in the latest year, the Financial Times reported, without saying where it got the information.

The outlook is brighter, though, as the cessation of rolling power cuts may help the utility post a profit in the year through March 2025 for the first time since 2016, Dan Marokane, Eskom’s chief executive officer, told the newspaper in an interview.

Eskom has just clocked more than 100 days free of the regular rolling blackouts, or load-shedding, that have plagued South Africa. The utility first implemented the power cuts 16 years ago as it struggled to supply adequate power, and they had become endemic in recent years.

The energy crunch has hurt households and businesses and in turn weighed on economic activity in Africa’s largest economy, In 2023 it contributed to a drop in GDP growth to just 0.7%, the slowest rate of expansion since the pandemic in 2020.

Marokane, who took over as CEO on March 1, is working on salvaging Eskom’s reputation with investors who buy the utility’s bonds globally, which he expects to be a protracted exercise.

Trust can only be rebuilt “with empirical evidence over time that shows you’re continuing to deliver,” Marokane told the London-based newspaper.

“To sustain this, Eskom has brought in new executives, and we also haven’t had a board anywhere close to this level of talent mix for some time.”

Eskom CEO Dan Marokane

Eskom finances

Eskom reported a massive loss of R23.9 billion for the 2022/23 financial year in October 2023, feeling the blow of severe load shedding that year.

Load shedding escalated to 280 days in FY 2023, from 65 days in FY 2022, which impacted revenues. The group said load had to be curtailed by an estimated 13,476GWh, up from 1,605GWh in 2022.

This resulted in a staggering jump in spending on the group’s gas turbines, with spending more than doubling from R14.7 billion in 2022 to R29.7 billion in 2023.

In December 2023, the group projected another significant loss for the 2023/24 financial year (ending March 2024).

In a presentation to Parliament’s Public Enterprises Committee at the time, the group forecast a loss of R23.2 billion for the year. The FT says is now expected to report a reduced loss of R15 billion – though it remains a significant loss.

One of the biggest culprits behind the staggering losses is diesel spend, which continued to escalate in the year ending March 2024.

The (now shuttered) Department of Public Enterprises previously reported a total diesel spend by Eskom of R65 billion between 2020 and 2024, including a “draft, unaudited” bill of R23.4 billion in 2024.

However, the Financial Times reports this figure has since ballooned to R33 billion.

According to Marokane, the picture for FY25 is looking very different, though, with the group reducing its diesel bill by almost R10 billion between April and July, compared to the same time last year.

This, Marokane said, would be a “strong driver in a possible return to profit in FY25”. He told the FT that if Eskom continues this trajectory, there’s no reason the group couldn’t post a profit.

100 days and counting

Eskom reported on Friday (5 July) that it had hit the milestone of 100 days free of load shedding – the first time the country has been free of national outages for that long since 2021.

By Monday (8 July), the counter had ticked to 103 days and counting, with Eskom confident that it can continue the streak.

The group said operational efficiency continues to surpass expectations, with current unplanned outages averaging 12.500MW since the start of FY25, significantly lower than the winter forecast of 15,000MW, and far lower than some of the worst outages at the height of load shedding, over 18,000MW.

“The reduction in unplanned outages has significantly improved the available capacity to 32,816MW. The last time we achieved this level of availability was on 6 August 2021,” the group said.

The improvements are also seen in the energy availability factor (EAF).

The year-to-date (1 April 2024 to 4 July 2024) EAF increased to 61.5%. This is a significant improvement compared to the same period last year where the EAF was 54.6%. The weekly EAF has moved from 57.0% at the beginning of the financial year to 65.7%.

Eskom’s expenditure between 1 April and 4 July on OCGTs was R3.24 billion.

(With Bloomberg)

Read: Great news for load shedding in South Africa

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